I HOLD THIS TRUTH TO BE SELF-EVIDENT, THAT A DEBT CRISIS CANNOT BE RESOLVED WITH MORE DEBT

Tuesday, September 15, 2009

Treasury Receipts Down 15%

How's the economy doing? There is a huge raft of statistical data to choose from, but how about this one: U.S. Treasury receipts from all sources. It stands to reason that they are a pretty good indicator of overall economic activity since they include income and corporate taxes, customs and excise duties, etc.

The chart below shows a 12-month running total (blue line) and the percent change from the year before (red line); they are down 15% for the period ended in August 2009. That's not to say that nominal GDP is down 15% - don't forget the increase in government spending (which piles on even more debt, of course) and the artificial boost to numbers from the shrinking trade deficit. But what this chart is ultimately saying is that, when it comes to the private side of the economy, then yes, it is more or less down 15% from a year ago.

Data: US Treasury

12 Month Treasury Receipts down 15%

Another interesting observation has to do with the 2001-02 recession: as this chart indicates, it was not exactly mild. Treasury receipts went down around 13% because of the dotcom bust and 9/11, prompting Mr. Greenspan to respond with the disastrous monetary policy which eventually produced the massive credit and real estate bubbles.

27 comments:

But What do I Know?
said...

Thanks for this data, Hell. I have been trying to reconcile the collapse in government receipts (on a nominal dollar basis) with the assumption that we will deal with the budget deficit the way we did in the eighties and nineties--with rising (nominal) wages and increased capital gains, which raised government revenues. You will notice in 2001-03 that government receipts were down in nominal terms--showing for the first time how levered the government was to rising asset prices (caveat, I haven't yet figured out how much the Bush tax cuts affected this.)

I don't see where the government's normal revenue growth is going to come from this time (absent tax increases). Wage and salary rates are stagnant (unlike the eighties and nineties when the were rising in nominal terms) and the number of people employed has dropped precipitously and does not show any sign of snapping back quickly. Dividends and interest income is down because of low rates and the problems in the banking sector (which was a big source of dividends). Capital gains income growth would require a return to 1200-1300 on the S&P, if data from 5-7 years ago are to be believed. Pension income and SSI payments will be increasing in aggregate but on at a slow and predictable rate.

The essential problem for federal receipts is that wages over the last seventy years have almost always had nominal Y-O-Y increases because of three factors: rising wage rates (nominal terms), increased proportion of population employed, and increasing population. The difficulty now is that the percentage of the population employed peaked in 2000 and has dropped almost 4% since its recent high in 2007, and nominal wages are not rising. In addition, the rate of population increase has slowed.

I guess this all boils down to the need for inflation to solve the deficit problem. Without inflation, government receipts will not rise and the deficit will continue on an unsustainable path (note that the government is assuming rapidly rising receipts (somewhere around 7% annually in nominal terms) just to meet the current 10-year, $9 trillion deficit projection.)

Tax receipts in the late nineties benefited greatly from capital gains on stock sales. This came to a sudden halt in 2000.

K-Winter started then, and Greenspan/Bernanke did what they could to stop it. K-Winter came back with a vengence in 07/08 and Bernanke is running the remaining plays outlined in his 02 "deflation it can't happen here" speech.

If past is prologue, this attempt at a cure will only prolong the disease and make its symptoms even more violent.

Trying to solve a debt problem with more debt -- ugh. Mises, Misky, Fisher, et al will be proven right through this period in history, IMO.

I picked this up from Barry Ritholtz's Big Picture.... Dylan Ratigan hosts the show Morning Meeting with Dylan Ratigan, which airs weekday mornings from 9 to 11 A.M. ET.

----

The American people have been taken hostage to a broken system.

It is a system that remains in place to this day.

A system where bank lobbyists have been spending in record numbers to make sure it stays that way.

A system that corrupts the most basic principles of competition and fair play, principles upon which this country was built.

It is a system that so far has forced the taxpayer to provide the banks with the use of $14 trillion from the Federal Reserve, much of the $7 trillion outstanding at the US Treasury and $2.3 trillion at the FDIC.

A system partially built by the very people who currently advise our President, run our Treasury Department and are charged with its reform.

And most stunningly — it is a system that no one in our government has yet made any effort to fundamentally change.

Like health care, this is a referendum on our government’s ability to function on behalf of the American people. Ask yourself how long you are willing to be held hostage? How long will you let our elected officials be the agents of those whose business it is to exploit our government and the American people at any cost?

As hostages — was there any sum of money we wouldn’t have given AIG?

Why did we pay Goldman Sachs and all the other banks 100 cents on the dollar for their contracts with AIG, using taxpayer money, while we forced GM and others to take massive payment cuts?

Why hasn’t any of the bonus money paid to the CEOs that built this financial nuclear bomb been clawed back?

And more than anything else — why does the US Congress refuse to outlaw the most anti-competitive structure known to our economy, one summed up as TOO BIG TOO FAIL?

It has become startlingly clear that we as a country, and I as a journalist, had made a grave error in affording those who built and ran those banks and insurance companies the honorable treatment of being called capitalists. When in fact the exact opposite was true, these people were more like vampires using the threat of Too Big Too Fail to hold us hostage and collect ongoing ransom from the US Government and the American taxpayer.

This was no unlucky accident. The massive spike in unemployment, the utter destruction of retirement wealth, the collapse in the value of our homes, the worst recession since the Great Depression all resulted directly from these actions.

Even with all that — the only changes that have been made, have been made to prop up and hide the massive flaws on behalf of those who perpetuated them. Still utterly nothing has been done to disclose the flaws in this system, improve it or rebuild it.

Last fall was an awakening for me, as it was for many in our country.

And yet, our Congress has yet to open its eyes, much less do anything about it. In fact conditions have never been better for the banks or worse for the rest of us.

Why is this? Who does our Government work for? How much longer will we as Americans tolerate it? And what, if anything, can we do about it?

As we approach the anniversary of the bailouts for our banks and insurers — and watch the multi-trillion taxpayer-funded programs at the Federal Reserve continue to support banks and subsidize their multibillion bonus pools, we must ask if our politicians represent the interests of America? Or those who would rob America of its money and its future?

As a country, we must demand that our politicians stop serving those whose business models are based on systemic theft and start serving those who seek to create value for others — the workers, innovators and investors who have made this country great.

"I don't see where the government's normal revenue growth is going to come from this time (absent tax increases). "

Indeed!

But should the government attempt to salvage itself by confiscating wealth and income from "We The People", they are going to get an iron fist planted squarely and ferociously right in their face. Following upon that, they will be feeling the delivery of a cement filled steel toed boot to their rump.

Aside: One wonders what the rump of government is exactly?

This, of course, doesn't mean government won't try to separate us from what is ours, anyway, since (following on with my metallic theme) the Feds generally have a tin ear in such matters.

I didn't mean to imply it was a good idea to raise taxes. I can't figure out why we're paying them at all, given the fact that the Feds are going to spend $2 for every $1 they take in this year and are projecting something similar for next year. Let's just sell bonds (or print Federal Reserve Notes to buy the bonds--what's the difference) since no one seems to mind holding them as long as they can make money on the spread by levering up. And with no one paying taxes, we can spend the money on stuff and restart the inflation machine.

Sure, maybe there'll be problems down the road, but this is a *crisis*, man; we can't think about the long-term ramifications when there are problems right now! The Fed can always undo it, right?

@Edwardo re: "But should the government attempt to salvage itself by confiscating wealth and income from "We The People", they are going to get an iron fist planted squarely and ferociously right in their face. Following upon that, they will be feeling the delivery of a cement filled steel toed boot to their rump."

So I assume you are following this health care debate rather closely then, as the lingo has been nicely worded in statements like "it doesn't raise the deficit"- even as it increases the %GDP spent on health care.

For remember, you are in a state that is felt (by some) to have Rolls Royce health care- and that is one of the primary places the current policy wonks feel they can find the the money to fund their increase %GDP spending on health care in the first place- even as it does not increase the deficit ;-)

You know, Edwardo, I for one am not particularly impressed with the American people's capacity to revolt ( a double edged capacity...) and these days its capacity to find imaginative solutions to this messy problem seems to be rather limited too, no ?It just so happens that the three basic functions of taxation, when it is done properly are :to generate income for the governmentto redistribute income, thus diminishing wealth concentrationto foster a sense of community/solidarity both horizontally, within society, and between the generations.

It is quite clear to me that for some time now, the American people have lost sight of these functions and are now living in a cloud cuckoo land of "me, me, me" individualism which ultimately ensures, of course that ANY and ALL community/solidarity bottoms out, right along there with... the republic itself.

"For remember, you are in a state that is felt (by some) to have Rolls Royce health care."

-According to who? Please tell me, as one who pays for his family's health care insurance, (and prefers Bentleys) why it's so wonderful?

Debra wrote:

"You know, Edwardo, I for one am not particularly impressed with the American people's capacity to revolt ( a double edged capacity...) and these days its capacity to find imaginative solutions to this messy problem seems to be rather limited too, no?"

-If, by "capacity to revolt", you mean inclination to revolt, you may be correct. The inclination and/ or propensity to revolt appears, at present, to be lacking. With that in mind, I give you all

http://Americanrevt.blogspot.com

Debra went on to posit that:

"It just so happens that the three basic functions of taxation, when it is done properly are :

to generate income for the government

to redistribute income, thus diminishing wealth concentration

to foster a sense of community/solidarity both horizontally, within society, and between the generations. "

-Well, Debra, then taxation I fear has never been done properly, since it has always and everywhere had as part of its design the intention to discourage certain activities and pursuits. Witness, for example, and this is just one example of many, the whopping 28% capital gains tax one must pay on "collectibles" versus the 15% tax on capital gains in shares.

And here in MA, if one wants to acquire a permit to own a handgun, which is a Constitutional right under the 2nd Amendment, one must fork over a $100 dollar licensing fee.

As for redistributing wealth so as to diminish wealth concentration, that is a purpose for which some, including the estimable (albeit persecuted) Martin Armstrong assert has very unfortunate long term consequences for the health of any nation. That idea may not appeal to you, but there it is.

As for taxes fostering what you propose, let's just say that your idea, though expressed eloquently, strikes me as fanciful. I think solidarity and community can be achieved effectively by other means. I prefer to let people keep the money they earn.

Debra also wrote:

"It is quite clear to me that for some time now, the American people have lost sight of these functions and are now living in a cloud cuckoo land of "me, me, me" individualism which ultimately ensures, of course that ANY and ALL community/solidarity bottoms out, right along there with... the republic itself."

Perhaps we Americans do function as you describe, but, quite frankly, as you are not from around these parts, and possess what appears to me to be a certain, how do I put this, bias, I am not sure I trust where your perception is coming from.

Because Edwardo, you pay so much more than everyone else so it must be better, no? ;-)

But seriously, Boston has more toys to play with if you are sick- indeed, don't some people live/travel to Boston for just this reason?

The question is what kind of value you get for all those toys.

And since most of the physicians I know who work in Boston are not paid on fee for service models, you Bostonians don't even get to eliminate "waste fraud and abuse" so readily by just playing with physician compensation models (like that will solve everything- not).

So you will have to decide which toys you don't want to pay for and this is where the discussion starts to get really really ugly

And if you decide you don't want pay for say MRI guided brain cancer resections, what happens to those people in your economy who currently do that stuff?

And will we take that money and move it to (say) Alabama? Again bad for Boston.

For remember, universal coverage by taxing health insurance will mean there will be a sucking sound of money from the liberal northeast to the conservative south as your Bentley health care plans are taxed to moved assets to places that have much less care.

In fact, you will be taxed more under all current proposals, don't underestimate this.

Abundance only potentially makes my health care better. I get the distinct impression you think I am for universal health care as presented.

Finally, Boston has more "health care" because we have more, a lot more, and generally better institutions of higher Learning than, for example, The Deep South. It's one reason why Boston is Boston and Alabama gets jokes told about it of the following sort:

Re: "Finally, Boston has more "health care" because we have more, a lot more, and generally better institutions of higher Learning than, for example, The Deep South. It's one reason why Boston is Boston and Alabama gets jokes told about it of the following sort:"

Edwardo, my son is in his fourth year of medical school in France and if you told anyone over here that med school students cost $500,000/year to educate, they would LAUGH.The big university hospitals are getting "free" labor from their med students starting in the fourth year. My son's med school is working like an apprenticeship. If you took the med school students out of the system in the big university towns, the system COULDN'T function.And... althought I have now lived more than half of my life OUTSIDE the U.S., I was born there, and grew up there.I firmly maintain what I stated about taxation. I said what it SHOULD do, not what it... DOES.And Edwardo ? Thai went to those East Coast prep schools, YOU went to those East Coast prep schools, I went to those East Coast prep schools.The entire area is one, by the way, that WE EUROPEANS feel very comfortable in because it reminds us so much of... EUROPE. The Old World, you know.Don't tell me you haven't noticed this. It is one of the major reasons that the Mississippi people feel so slighted in the Union...

About Me

I was educated as a chemical engineer but spent almost my entire career in finance, particularly in money, FX and bond markets. The name stands for Hell-as-IOUs and the picture points to Quixotic endeavors.